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ncome Statements under Absorption Costing and Variable Costing Gallatin County Motors Inc. assembles and sells snowmobile engines. The company began operations on July 1 and operated at 100% of capacity during the first month. The following data summarize the results for July: Sales (4,000 units) $2,600,000 Production costs (4,350 units): Direct materials $1,218,000 Direct labor 522,000 Variable factory overhead 87,000 Fixed factory overhead 130,500 1,957,500 Selling and administrative expenses: Variable selling and administrative expenses $60,000 Fixed selling and administrative expenses 25,000 85,000 a. Prepare an income statement according to the absorption costing conce

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Answer:

Income statement according to the absorption costing

Sales                                                                                         2,600,000

Less Cost of Goods Sold

Opening Stock                                                          0

Add Cost of Goods Manufactured

Direct materials                                                   1,218,000

Direct labor                                                           522,000

Variable factory overhead                                     87,000

Fixed factory overhead                                        130,500

Less Closing Stock (1,957,500/4,350)×350      (157,500)       1,800,000

Gross Profit                                                                                   800,000

Less Period Costs :

Selling and administrative expenses:

Variable selling and administrative expenses                           (60,000)

Fixed selling and administrative expenses                                (25,000)

Net Income                                                                                    715,000

Explanation:

Product/Manufacturing Cost - Absorption Costing = Direct Materials + Direct Labor + Variable Overheads + Fixed Overheads

Period Cost - Absorption Costing  = All Non - Manufacturing Costs

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